FAPS Adjustments recap

A business has a year end of December 2020. They receive a bill for electricity on 15th January for £690 for the quarter ending January 2021. What is the correct accounting treatment?

• A prepayment for £690

• An accrual for £230

• A prepayment of £230

• An accrual for £460

Answer explanation

The year end is December 2020 if the bill is for the quarter ending January 2021. We need to accrue for November and December 2020 690/3*2=460

The correct treatment for closing inventory is?

• Debit Statement of Financial Position and Credit Statement of profit and loss

• Credit statement of financial position and Debit statement of profit and loss

Answer explanation

Closing stock is an asset so therefore shows as a debit in the statement of financial position.

If the allowance for doubtful debts decrease the correct accounting entries are?

• Dr Adjustment to allowance for doubtful debts and Cr Allowance for doubtful debts

• Dr Irrecoverable debts and Cr Allowance for doubtful debts

• Dr Allowance for doubtful debts and Cr adjustment to allowance for doubtful debts

Answer explanation

If allowance decreases then its classed as income

If something written of as an irrecoverable debt is later recovered we can use this to reduce the irrecoverable debts expense for that year?

• True

• False

Answer explanation

if a debt has been written off then we would not go back to cancel the write off. If its recovered its unlikely we would recover the whole amount so the entries are Dr Bank Cr Irrecoverable debts

Which of these explains reducing balance depreciation?

• The amount is calculated on the original cost of the asset

• The amount is the same each month

• The amount of depreciation is calculated on the net book value of the asset

Answer explanation

Reducing balance depreciation is calculated on the net book value or written down value of the asset. As the asset declines in value the amount of depreciation will also decrease.